This number-crunching econometrician makes the “dismal science” accessible. He recently spoke with USC Trojan Family Magazine’s Diane Krieger about his interests, his ideas for building up USC Dornsife’s economics department, and more.

What brought you to USC from Cambridge University?

One of the reasons I’m here is that the administration is really determined to help the economics department grow. We have such a large body of undergraduates — 800 plus — and many natural links to other USC programs, such as law, business, political science, real estate and history. They know we need to develop a larger area of expertise. USC Dornsife Dean Steve Kay asked me to head a search committee to ﬁnd a new chairperson for the economics department, so I’ve spent the last three weeks talking to people to entice them to apply.

You are launching a new Center in Applied Financial Economics.

Yes. We had our ﬁrst conference Nov. 16, on “The Global Economic Crisis and Latin America.” The idea is to build a better bridge between economics and the USC Marshall School of Business. They have some very good economists there, like Wayne Ferson and Vincenzo Quadrini. The center aims to promote a uniﬁ ed and rigorous interdisciplinary approach to research that cuts across ﬁnance, econometrics and international macroeconomics.

The world economy has been in a bad way since 2008. How are we doing with the recovery?

We actually came out of the woods fairly quickly. Looking at the data on output across diﬀerent countries, I was really worried. All economies — the U.S., Europe, China, India, everywhere in the world — they all fell. This correlation, this dependence, was very scary. I think a lot of good work was done. The G20 got together. They did not start putting up trade restrictions on each other, which we saw happen in the 1920s and ’30s. To me that was really important. It shows the power of economic science. We had learned that, as nations, we should cooperate with each other, particularly in times of crisis. The world is like interconnected containers of water. You move the water up at one end, and you may not see it everywhere immediately. But it will happen. It will spread out. This is the picture you should have in mind of how the global economy operates. We are all interrelated.

You’re known as a leading exponent of “real-time econometrics.” What is that?

Imagine having your economic preferences coded in an application that picks up data and makes suggestions to you. This is what is called real-time analysis. We already are using these techniques when we use Google or Amazon. The more important use of real-time econometrics is at the level of large organizations, ﬁ nancial institutions and governments. Morning traders are subject to huge amounts of data coming from all over the world. You could imagine a way of using this data — together with some strat-egy vis-à-vis risk management— to develop procedures that help them make buy-sell deci-sions. Governments need to decide whether to expand the economy, what tax rates to change, what interest rate strategy to implement. Satisfactory answers to all these questions are very di ﬃ cult to arrive at without data analysis of the type I am suggesting. To read more of this interview, go to tfm.usc.edu/Pesaran. If you have questions or comments on this article, go to tfm.usc.edu/mailbag.

Holder of the John Elliott Chair in Economics in USC’s Dornsife College of Letters, Arts and Sciences, M. Hashem Pesaran has contributed mightily to his field. In 1986, he founded the respected Journal of Applied Econometrics, where he continues as editor. Together with his brother, Bahram, an economist based at a London hedge fund, he developed Microfit, a standard econometric software used in forecasting, hypothesis testing and estimation, now in its fifth version. In 1998, he developed GVAR, a global macroeconometric model commonly used in financial stress testing, shock scenario analysis and forecasting. His publications — more than 147 journal articles, 44 book chapters and 16 books and edited volumes — have fundamentally changed our understanding of the interrelatedness of global financial systems and risk.